Funds’ Five-Year Returns Are Magically Levitating — Don’t Be Fooled

By Brendan Conway

Mutual funds are approaching the five-year mark since the financial crisis. The passage of five years makes fund marketing a whole lot easier, since the post-crisis period has been such a remarkable one for asset prices.

The same trend puts investors at risk of feeling too good. Don’t be fooled.

Daniel P. Wiener of the Independent Adviser for Vanguard Investors today sends clients a 12-year chart of the S&P 500 (SPY), foreign stocks and small stocks. The record, of course, is something very different from the last five years’ nearly uninterrupted rise.

From Wiener’s client email:

By February 2014 the financial crisis will be out of the performance numbers. We saw this with the 3-year numbers in early 2012 where, for instance, the 3-year annualized return for the S&P jump from 14% to more than 25% in two months. And, as the chart shows it’s already happening with the S&P’s 5-year return moving from about 0% a year ago to almost 10% now. This sets up some pretty unrealistic expectations for investors, particularly given the fact that, based on Friday’s close, the 5-year return is now running over 14%!

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our
Subscriber Agreement
and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit